Machine Industry in V4 (and EU)
Vladimír Benč Research Centre of the Slovak Foreign Policy Association, n.o. Hlavná 11, 080 01 Prešov, Slovak Republic e-mail: [email protected] tel./fax: +421 51 7721 018 web: www.sfpa.sk
Kiev, 23.06.2016
V4 –vs. EU 28, GDP at market prices in PPS per inhabitant (1995 – 2013 )
5,000
8,000
11,000
14,000
17,000
20,000
23,000
26,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
European Union (28 countries) Czech Republic Hungary Poland Slovakia
What is a machine industry? The average car is made up of about 1,800 – 2200 separate parts, that
includes some large components, such as the engine, which is inserted as a unit during the car-making process, but contains thousands of individual pieces itself.
TOYOTA e.g. declares that their single car has about 30,000 parts, counting every part down to the smallest screws. And the parts are made of very different materials. New materials sector (such as composites) is a such example.
defining the machine building sector in a different way - in Slovakia - 4 NACE sectors: NACE 25 - manufacture of metal products and fabricated metal products; NACE 28 - manufacture of machinery and equipment; NACE 29 - manufacture of motor vehicles, trailers and semitrailers; NACE 30 - manufacture of other transport equipment;
but not ... an electrotechnical industry: NACE 26 Manufacturing of computer, electronic and optic products; NACE 27 Manufacturing of electric equipment.
What is a machine industry? The engineering industry is the largest industrial branch in the EU, with a
turnover of over €1,825 billion in 2014. The industry accounts for over a quarter of manufacturing output and a third of the manufactured exports of the European Union.
Automotive industry Employment - around 12 million people of which manufacturing accounts for 3
million jobs, sales and maintenance for 4.3 million, and transport for 4.8 million; Economy - the automotive sector accounts for 4% of European GDP.
Mechanical Engineering 3 million people are employed in the sector in the EU; 9.5 % share of all the production in EU manufacturing industries; Europe is the world’s largest producer and exporter of machinery with an
estimated 36 % share of the world market. Aeronautics
500 000 jobs and generated a turnover of close to EUR 140 billion, in 2013; the EU is a world leader in the production of civil aircraft, including helicopters,
aircraft engines, parts and components; The industry is highly concentrated, geographically (United Kingdom, France,
Germany, Italy, Spain, Poland and Sweden) and in terms of the few large enterprises involved.
What is a machine industry? Electrical and Electronic Engineering industries
EEI produces a wide range of products, ranging from consumer products to turbines, trains, power grids and power stations. The industrialisation of emerging economies has been the most important driver of its expansion.
EEI’s gross output in 2012 was EUR 703.3 billion, approximately 9.6 % of all manufacturing gross output;
the EU is the largest electrical engineering market, followed by the USA and Japan.
Ships and Maritime Equipment Industry employs more than 500,000 people and has an average annual turnover of around
EUR 72; the European shipbuilding industry and ship repair industry is made up of around 300
yards of which more than 80% can be considered to be ‘small to medium’ (building ships of 60-150mt);
marine Equipment Manufacturing is made up of around 7,500 companies; around 70% of production is for export markets.
Defence industries directly employs about 400 000 people; had a turnover of EUR 96 billion in 2012; involves more than 1 350 mostly small and medium-sized enterprises (SMEs)
Key characteristics & challenges of the sector in EU High manufacturing intensity & investment demanding
predominantly small-batch and single-item production; high qualification requirements for staff in manufacturing departments; large, relatively complex communication requirements between the manufacturing, engineering,
and design departments. Productivity is considerable and despite high employment costs A sizeable share of value added is spent on research and development (R&D) Sector has significant potential for further growth and expansion The market for products is mainly global with swift technological innovation
leading to continuous renewal of products and changes in patterns of use Challenges ahead:
Loss of skilled labour , in particular, the resulting shortage of engineers and high-skilled personnel in advanced technologies (boom of the sector + school system);
Access to credit from financial institutions esp. “risk capital” for R&I; Progress is required regarding the energy supply infrastructure, as well as the energy efficiency
of buildings, transport networks and industrial production – enegy demanding sector / vulnerable to energy policy;
Investments in research and development (R&D) are crucial , development of smart technologies is important;
The unfair global competition caused by non-compliant goods is affecting the sector’s competitiveness. Also “steeling” the know-how is a big challenge.
Machine industry in V4 countries Important sector of economy - high share on GDP, output and export A long tradition of the sector – linked to defence industry after IIWW, then
shift to agriculture machines & transport vehicles production
Czech Republic
Hungary Poland Slovakia
2005 2013 2005 2013 2005 2013 2005 2013 Industry value added, % of GDP 28,1 27,9 22,1 22,0 22,1 22,1 26,3 22,9 Machine-building value added, % of GDP 8,0 9,8 7,7 8,5 3,5 n/a 5,1 6,5
Machine building output relative to GDP, % 32,3 41,0 36,5 37,9 14,6 n/a 30,1 45,2
Machine building value added, % of industry 28,5 35,1 34,8 38,5 16,0 n/a 19,6 28,6
Employment in machine building sector, % of industry employment 27,9 32,1 29,6 34,3 19,4 17,8 23,9 29,3
Export of machine building sector to total export of all HS commodities, % 51,2 55,0 62,0 53,0 39,6 38,4 44,9 57,9
Export Commodities: Czech Republic – machinery and transport equipment: 54.6%; fuels and chemicals
9%; raw materials 5% Hungary - machinery and equipment: 53.5%; other manufactures: 31.2%; food
products: 8.7%; raw materials: 3.4%; fuels and electricity: 3.9% Poland - machinery and transport equipment: 37.8%; intermediate manufactured
goods: 23.7%; miscellaneous manufactured goods: 17.1%; food and live animals: 7.6%
Slovakia - vehicles and related parts: 27%; machinery and electrical equipment: 20%; nuclear reactors and furnaces: 12%; iron and steel 4%; mineral oils and fuels: 5%
Territories: Czech Republic - Germany 32.4%, Slovakia 8.4%, Poland 6%, UK 5.1%, France
5.1%, Austria 4.4% Hungary - Germany 28.8%, Austria 5.8%, Romania 5.7%, Slovakia 5.1%, Italy
4.8%, France 4.7%, Poland 4%, Czech Republic 4% Poland - Germany 27.1%, UK 6.6%, Czech Republic 6.6%, France 5.8%, Italy
4.7%, Netherlands 4.3%, Russia 4.2% Slovakia - Germany 23.3%, Czech Republic 13.6%, Poland 8.8%, Hungary 6.6%,
Austria 6.5%, UK 5.4%, France 5.2%, Italy 4.8%
Foreign Direct Investment
In the early 1990s, the existing automotive industry capacities in the Czech Republic, Slovakia, and Poland were privatized and acquired by Volkswagen and Fiat.
Hungary became a popular greenfield investment destination in the mid 1990s. During the late 1990s and early 2000s, FDI inflow in the automotive industry was
dominated by greenfield investments, while investment incentives played an ever increasing role as the offers of mutually competing V4 states were usually similar.
Approximately 75% of V4 automotive assembly plants and suppliers are now located within a 200km radius which is centered on the border between the Czech Republic, Slovakia, and Poland.
"The FDI battle" –Jaguar & Land Rover • In 2015 (contract signed on DEC 11), Jaguar & Land Rover decided on an investment of 1.1
billion pounds (ca. 1.4 billion euros) into a new car factory in Nitra, Slovakia The company will create 2,800 jobs – directly. The first cars will be produced in 2018, and in the first phase the plant is expected to produce 150,000 vehicles.
• The company had performed analyses of several possible factory sites in Europe, the United States, and Mexico in 2014. In early 2015 the shortlist included: Mexico, Poland, and Slovakia. Official talks with Slovakia commenced in February 2015. The final "battle" was between Poland and Slovakia.
• Poland opposed that Slovaks have offered high state aid, which it was no longer willing to call. The Slovak government approved a subsidy to the tune of € 130 million for tangible and intangible assets provided by the carmaker. The subsidy amounts to 9% of the total investment volume. This amount is also the ceiling that the Slovak government can offer investors as an investment incentive for the particular region and type of investment.
• Jaguar Land Rover's final decision was not only based on government subsidies. Tough the average hourly wage in Polish industry is 8.50 euros, while in Slovakia it is 10 euros, the latter is still only half of the expected labour costs in the UK. Moreover, Slovakia is also a member of the Euro Zone, which eliminates risks stemming from currency exchange. The official announcement of the car-company also referred to a strong network of suppliers and good logistics infrastructure.
V4 Institutional regulation / economic policy There are no specific governmental regulations concerning the machine industry in
the V4 countries, especially since the EU accession. Specific tax benefits and other forms of governmental support mainly relate to FDI. We assume that in most cases investors first look at the V4 countries as a general region or cluster, and then analyze country-specific conditions, factors, endowments, and policies.
A skilled and abundant labor force is commonly understood as an important factor in attracting FDI in manufacturing.
Transport infrastructure, the most developed country in the region is the Czech Republic, followed by Hungary and Slovakia. Poland is catching up in the last years.
Taxation is not the “strong” factor of the V4 countries any more. The Paying Taxes Rankings of particular V4 countries were much better right after they enacted economic reforms and before the economic crisis hit.
Investment incentives represent an important competitive tool, but are limited by the EU State Aid system. In general, national incentives schemes in the V4 countries limit state aid offered to investors based on regional characteristics (e.g. unemployment rate) and the type of target industry (e.g. manufacturing, R&D, technological centers, etc.). Nevertheless, despite the detailed incentive schemes, V4 countries usually allow for the special treatment of strategically important investors, which gives governments flexibility in negotiations with significant investors.
Impact of R&D on economic recovery
BE
BG
CZ
DK
DE
EE
IE
EL
ES
FR
IT
CY LV LT
LU
HU
NL
AT
PL
PT
RO SK
FI SE
UK
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0.5
1.0
1.5
2.0
2.5
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-5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0
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R&
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04-2
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GDP growth, 2010
Innovation - Patents New registered patents of Slovak institutions
1988-1992
1993-1997
1998-2002
2003-2007
2008-2012
Universities 10 8 10 7 7 Research Institutes 26 8 6 3 4 Slovak Academy of Sciences 26 13 9 12 11 Companies with more than 3 already registered patents 33 20 19 18 15 Companies with less than 3 registered patents (+ start-ups, spin-offs …) 103 113 95 87 91 Total 198 162 139 127 128
Foreign investors and trans-national corporations does not support R&D in Slovakia
Patent applications to the EPO, 2005 and 2012, per million inhabitants 2005 2012 EU-28 115 109 Czech Republic 11 18 Denmark 220 223 Germany 291 278 Hungary 13 20 Austria 185 215 Poland 3 12 Romania 1 3 Slovenia 54 42 Slovakia 6 10 Sweden 270 290 United Kingdom 94 80
Transformation scenarios I. Big company, either with long tradition or not – survived mostly by the
strong support of the government in its restructuralisation and diversification of production, producing several products or having several daughter companies specialising in selected segment of the market. In some cases, still partly depended on public investments/orders (defence industry, public transport vehicles, etc.) … and indirectly on the EU funds;
II. Big company – fragmented into several small companies, of which few could survive by smart specialisation or acquiring the strong investor (mostly FDI), who invested money into the modernisation of production and opened new markets;
III. SMEs – having unique product on the market, strongly specialising on some market segment, able to compete on global markets;
IV. Big companies or SMEs – able to adapt to the needs of huge automotive investments in the Central Europe and became suppliers. In many cases (esp. in Slovakia), acquiring the strong investor (mostly FDI) for modernisation of production, acquiring international certificates and better management;
V. others ...
ŠKODA Transportation Company with long history - In the year 1859, count Valdštejn-Vartenberk
established a subsidiary of his foundry and engineering works. In 1866, ing. Emil Škoda, a highly competent engineering expert and dynamic entrepreneur, became the Chief Engineer of the factory which had more than a hundred employees, and in 1869 he purchased the factory.
Škoda Transportation started diversification of its production programme from the key industry of production of railway vehicles to include the sphere of public urban transport. Since the end of the 1990s there has been extensive modernisation of subway train units and increasing production of modern low-floor trams.
Tatravagónka Poprad History of Tatravagónka may be traced back to 1922, when the blacksmith
workshop Halath & Co. won a tender for repairing freight wagons for the Czechoslovak Railways Company. The production of wagons started in 1946, but only one type was produced at that time.
Optifin Invest acquired the company in 2006. Optifin Invest – a 100% owner of the only manufacturer of railway freight
wagons and bogies in Slovakia, and one of the biggest in Europe, tatravagonka Poprad, performed the third foreign acquisition. After acquisition of the companies Fabryka Wagónow Gniewczyna, Poland in 2009, and Bratstvo Subotica, Serbia in 2011, it acquired 100% of business shares of the German company ELH Eisenbahnlaufwerke Halle GmbH & Co. KG, Landsberg. The transaction was performed with retroactive effect from January 1st, 2012.
Army industry conversion> case of ZTS Martin 85 ths. employees in 1985 Production of T-72 tank in coorporation
with Poland and self-propelled Gun Howitzer “Zuzana” – in cooperation with Czech rep. (Tatra)
In 1990-1993 – GOV programs for transformation into construction and agriculture machines – most of the projects bankrupted
Machine industry production felt by 30% Several small companies survived DMD Group still produces army products
incl. ammunition
ZTS Strojárne Námestovo Until 1971 only military production 1972 - components production for forestry tractor LKT 75 and start of
components production for ZETOR engines 2004 – achieve strategic partner status at CLAAS and ATLET AB 2011 – major alterations to the John Deere and CAT range due to Tier4 design
changes
»
ZTS VVU Košice - Etablished in 1976 - Incorporated into ZTS Martin in 1981 - State owned company till 1993 - Slovak ownership till today
SORTIMENT DODÁVANÝCH ROBOTICKÝCH SYSTÉMOV Robot systems for nuclear plants
SORTIMENT DODÁVANÝCH ROBOTICKÝCH SYSTÉMOV Service & security robots
• Personal Intelligent City Accessible Vehicle System - PICAV
•Freight Urban Robotic Vehicle - FURBOT
SPINEA
SPINEA Prešov THE ONE AND ONLY ORIGINAL EUROPEAN
PRODUCER OF HIGH PRECISION GEARBOXES
TWINSPIN - ZERO BACKLASH GEARBOX PRODUCED BY SPINEA HAS A UNIQUE CONSTRUCTION BASED ON OWN PATENTENTED
PRINCIPLE
SPINEA
PLANT #1
SPINEA
PLANT #2
SPINEA
SPINEA SIZE AND TORQUE RANGE
From diameter 50 mm up to 335 mm TWINSPIN REDUCER SIZES
100 1000 2000 3000 4000 5000 6000 50 Nm
TWINSPIN 50
NOMINAL TOURQE RANGE from 18 Nm up to 4500 Nm
SPINEA
Applications
ROBOTICS SPECIAL APPLICATIONS MACHINE TOOLS DEFENCE INDUSTRY
SOR Lichvaby (CZ) Till 1990, agrarian technology was manufactured: feeding vehicles, fodder
turners, silo unloaders, small mountain tractors and a variety of other machines In 1991, privatisation with direct sale. Development of buses and their production stared in 1995, and the history of a
new automobile factory in the Czech Republic began.
Booming car industry in V4 Slovakia produces the highest numbers of cars per 1,000 inhabitants in the World (2014): 183 cars per 1,000 inhabitants, the Czech Republic came second with 118 cars, South Korea was third with 82 cars. Hungary was in the 11th place with 23 cars produced per 1,000 inhabitants, while Poland produced 12 cars per 1,000 inhabitants in 2014. Major international companies with significant presence in V4: Poland> Fiat, Opel, Toyota, Volkswagen, MAN Nutzfahrzeuge, Solaris, Volvo and Scania AB. Mercedes is coming … Czech Rep.> Škoda Mladá Boleslav (Volkswagen Group), TPCA Kolín (Toyota, Peugeot, Citroen), and Hyundai Nošovice; trucks: TATRA Kopřivnice, AVIA Praha – Čakovice); public transport vehicles: KAROSA-IRISBUS, SOR, IVECO, Škoda Plzeň, ČKD Praha. Hungary> new Suzuki, Audi, and Mercedes factories; long tradition of bus production - Ikarus
Slovakia – cars producing nation
Car industry subcontractors location
Automotive industry in Slovakia Directly 80 ths. employees (22 ths. in
1993) Indirectly + 120 ths. Employees 35% share of the total industrial
export (17 bil. EUR) 2,5 bil. EUR added value
Car production data of neighbouring countries in 2013 were as follows: 1 132 931 Czech Republic; 222 400 Hungary; 583 258 Poland; 166 428 Austria and 50 449 Ukraine. The overall number of cars produced globally was 87 299 993 in 2013.
And more to come …
Source: Automotive industry association of the SR
It is not just a mechanical engineering …
316 Tier 1 companies in SK (2013)
A variety of clusters
Cluster
Traditional Industrial Districts
Cluster Hub-and-spoke
Firms
KEAs
Universities
Cluster
High-tech cluster
Example of the AT+R Cluster activity
Example of the AT+R Cluster activity II.
Regional implem.strategy & smart specialisation: case study Eastern Slovakia
V4 – lessons learned Industrial structural changes obviously need long-term and highly
coordinated efforts by central and local authorities; In the Visegrad Region such efforts were accompanied by economic policy
transformations; improvements in business climate and governance quality, i.e. price liberalization; opening the markets; increased transparency in privatization (regardless of whether it was rapid or gradual);
Creating an SME friendly business environment is very important; Flexible and innovative SMEs in the V4 succeeded thanks to unique and
specialized products or their flexible response to the needs of coming FDIs. Development of the banking sectors; as well as institutional development,
including efforts at greater protection of property rights and the elimination of corruption.
At the company level, machinery development in the V4 countries was driven by a focus on specific market segments and by FDIs provided by strategic investors.
EU accession is the motivation for the reforms > depends if you can use it wisely – reforms are not just a win-win case.
